Principles of Accounting
Mock Exam
Course Introduction
Principles of Accounting introduces students to the foundational concepts and techniques used in financial and managerial accounting. The course covers the accounting cycle, preparation and analysis of financial statements, and the understanding of core principles such as double-entry bookkeeping, accrual accounting, and internal controls. Emphasis is placed on analyzing business transactions, maintaining accurate records, and interpreting accounting information to support organizational decision-making. Students will also gain insight into ethical considerations and the regulatory environment governing accounting practices.
Recommended Textbook
Horngrens Financial Accounting 8th Edition by Tracie Nobles
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Page 2
Chapter 1: The Role of Accounting in Decision Making
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Sample Questions
Q1) The business receives cash from a customer that is owed to the company 'on account',based on services rendered to the customer previously.How does the collection of the cash affect the accounting equation?
A)One asset increases;one asset decreases.
B)Assets increase;owners' equity increases.
C)Assets increase;liabilities increase.
D)Assets decrease;owners' equity decreases.
Answer: A
Q2) Scott's Camera Shop started the year with total assets of $90,000 and total liabilities of $55,000.During the year,the business earned revenues of $120,000 and incurred expenses of $50,000.Scott made no additional capital contributions during the year,but did make drawings of $70,000. Calculate Scott's profit for the year.
A)$120,000
B)$90,000
C)$70,000
D)$50,000
Answer: C
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Chapter 2: Recording Business Transactions
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Q1) Which of the following accounts increases with a credit?
A)Accounts receivable
B)Cash
C)Capital
D)Prepaid expenses Answer: C
Q2) The drawings account is increased by a debit.
A)True
B)False Answer: True
Q3) When a business makes a cash payment,the Cash account is always debited.
A)True
B)False Answer: False
Q4) Which of the following is NOT part of owners' equity?
A)Bills payable
B)Capital
C)Accounts receivable
D)Both A and C
Answer: D
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Chapter 3: The Adjusting Process
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Q1) Classic Artists' Services has hired a maintenance man to maintain a building they use for instruction.He will begin work on 1 February and work through till 31 May.Classic Artists' will pay the maintenance man $16,000 at the end of May.It accrues Maintenance expense at the end of every month.What is the balance in the Accounts payable account for amounts owed to the maintenance man at the end of March?
A)Credit balance of $16,000
B)Debit balance of $16,000
C)Credit balance of $8000
D)Debit balance of $8000
Answer: C
Q2) If supplies have been used up during the accounting period,the correct adjusting entry would be:
A)reduce the asset 'supplies' and reduce the 'supplies expense'.
B)reduce the asset 'supplies' and increase the 'supplies expense'.
C)increase the asset 'supplies' and reduce the 'supplies expense'.
D)increase the asset 'supplies' and increase 'supplies expense'.
Answer: B
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Page 5
Chapter 4: Completing the Accounting Cycle
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Q1) As part of the closing process,revenues and expenses are closed to a temporary account called Profit (loss).
A)True
B)False
Q2) Which of the following accounts will be closed by debiting the Income summary account?
A)Accumulated depreciation
B)Service revenue
C)Accounts payable
D)Depreciation expense
Q3) Assets and liabilities are classified as either current or non-current to show their relative liquidity.
A)True
B)False
Q4) Which is NOT an example of a temporary account?
A)Electricity and gas expense
B)Service revenue
C)Wages expense
D)Accumulated depreciation
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Chapter 5: Retailing Operations
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Q1) Smith Company has a low number of days in inventory.This indicates that:
A)their inventory sales are producing low profits.
B)their inventory is turning over rapidly.
C)the cost of inventory is very high.
D)the firm has a low Gross profit percentage.
Q2) A company purchased inventory for $2000 from a vendor on credit,FOB shipping point,with terms of2/10,n/30.The company paid the shipper $100 cash for freight in.The company then returned damaged goods worth $200.The invoice has been paid 8 days after the sale.Assuming that there was no beginning inventory balance,the cost of inventory would be: (Assume a perpetual inventory system. )
A)$1864.
B)$1900.
C)$1960.
D)$1764.
Q3) Using the perpetual inventory system,discounts taken on an invoice,such as 3/10,n/30,would be:
A)credited to Inventory.
B)debited to Cost of sales.
C)credited to Cost of sales.
D)debited to Inventory.
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Chapter 6: Retail Inventory
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Q1) James Company earned revenue of $700,000 and incurred cost of sales of $110,000.How much is the gross profit percentage?
A)15.7%
B)84.3%
C)100%
D)42.15%
Q2) Under last-in,first-out,the cost of sales is based on the oldest purchases.
A)True
B)False
Q3) Which of the following assets must be reported at the lower-of-cost-and-net-realisable-value?
A)Inventory
B)Prepaid insurance
C)Accounts receivable
D)Cash
Q4) Given the same purchase and sales data,the three major costing methods will result in three different amounts for Sales revenue.
A)True
B)False
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Chapter 7: Accounting Information Systems
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Q1) A company's computer data processing system consists of:
A)personnel,records,procedures.
B)software,hardware,personnel.
C)general journal,special journal,general ledger.
D)none of the above
Q2) Assume a perpetual inventory system.A purchase on credit for $1 650 including 10% GST would be recorded in the purchases journal as:
A)debit to Inventory $1 650,credit to GST clearing account $150,credit to Accounts payable $1 500.
B)debit to Inventory $1 500,debit to GST clearing account $150,credit to Accounts payable $1 650.
C)debit to Inventory $1 500,credit to Accounts payable $1 500.
D)none of the above
Q3) The accounts receivable credit column of the cash receipts journal is:
A)posted in summary only at the end of the month.
B)posted in summary at the end of the month and by individual amounts on a daily basis.
C)posted by individual amounts at the end of the accounting period.
D)posted by individual amounts at the end of the month.
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Page 9
Chapter 8: Internal Control and Cash
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Q1) Which of the following items would require an adjusting entry after preparation of the bank reconciliation?
A)Outstanding cheques
B)Errors made on the books revealed by the bank reconciliation
C)All items on the bank's side
D)Errors made by the bank revealed by the bank reconciliation
Q2) A strong computer firewall is an essential element of good internal controls for e-commerce.
A)True
B)False
Q3) A 'cash short' situation exists where the cash register tape total is less than the cash on hand.
A)True
B)False
Q4) Cheque number 6135 for $576 was incorrectly entered as $657.Which adjustment needs to be made?
A)Decrease the book balance.
B)Increase the bank statement balance.
C)Decrease the bank statement balance.
D)Increase the book balance.
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Chapter 9: Receivables
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Q1) The ageing of accounts receivable method calculates bad debts expense as a percentage of net credit sales.
A)True
B)False
Q2) Interest revenue must be reported for a bill receivable that is outstanding at the end of the accounting period.
A)True
B)False
Q3) Days' sales in receivables is the ratio of average net accounts receivable to one day's sales.
A)True
B)False
Q4) The creditor is the entity that signs a bill.
A)True
B)False
Q5) The acid-test ratio is calculated as current assets divided by current liabilities.
A)True B)False
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Chapter 10: Non-Current Assets: Property, Plant and Equipment, and Intangibles
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Q1) Normal expenditures for repairs and maintenance should be capitalised.
A)True
B)False
Q2) If assets are scrapped before being fully depreciated,there is a loss equal to the carrying amount of the asset.
A)True
B)False
Q3) Which of the following is the expense resulting from a decline in the utility of a natural resource?
A)Depletion
B)Obsolescence
C)Amortisation
D)Depreciation
Q4) Tangible assets are assets with no physical form that have value because of the special rights they carry.
A)True
B)False
Q5) Goodwill is NOT amortised-but evaluated-each year for a decline in value.
A)True
B)False
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Chapter 11: Current Liabilities and Payroll
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Q1) Which of the following is pay over and above base salary,usually paid for exceptional performance?
A)Bonuses
B)Benefits
C)Wages
D)Commission
Q2) Firewood Company signed a three-year note payable for $58,000 at 9% annual interest.What is the interest expense for 2016 if the note was signed on 1 August 2016?
A)$2610
B)$15,660
C)$2175
D)$5220
Q3) Which of the following is included in the entry to record estimated warranty payable?
A)A debit to Estimated warranty payable
B)A credit to Inventory
C)A credit to Warranty expense
D)A credit to Estimated warranty payable
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13
Chapter 12: Non-Current Liabilities, Debentures Payable
and Classification of Liabilities on the Balance Sheet
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Q1) On 1 March 2017,Vinnie Services issued a 5% long-term note payable for $18,000.It is payable over a 3-year term in $6000 principal instalments on 1 March of each year,beginning 1 March 2018.Each yearly instalment will include both principal repayment of $6000 and interest payment for the preceding one-year period.What is the amount of total cash payment that the Vinnie will make on 1 March 2018?
A)$6900
B)$6450
C)$6000
D)$18,000
Q2) Balances for debentures payable on the balance sheet will show the balances minus any discount or plus any premium.
A)True
B)False
Q3) Which of the following is the amount the borrower must pay back to the debenture holders?
A)Present value
B)Principal amount
C)Market value
D)Stated interest value
Page 14
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Chapter 13: Partnerships
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Questions
Q1) Allan and Ralph are partners.Allan has a capital balance of $89,000 and Ralph has a capital balance of $73,000.Carol invested $61,000 to acquire an ownership interest of $50,000.Which of the following is true of the impact of the transaction on the balance sheet?
A)Assets will increase and equity will decrease.
B)Both assets and equity will increase.
C)Assets will increase and the equity will remain unchanged.
D)Asset increases and the equity will remain unchanged.
Q2) When a partnership is liquidated,the assets are sold for market value.Any gains and losses should be split according to the specified distribution of profits and losses as stated in the partnership agreement.
A)True
B)False
Q3) When a new person wishes to be admitted into an existing partnership that consists of two partners and wishes to obtain an equal share (1/3 share)of the new partnership,the amount that the new person must invest is required to be the average of the capital balances of the existing partners.
A)True
B)False
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Page 15
Chapter 14: Companies: Formation and Shareholders
Equity
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Q1) Shareholders of a company have unlimited liability for the company's debt.
A)True
B)False
Q2) Which of the following is the correct description of dividends in arrears,as it applies to cumulative preference shares?
A)The amount of dividends that will be paid in the coming year
B)The cumulative amount of dividends which were not paid in previous years
C)The amount of dividends that were paid late
D)The cumulative amount of dividends that were paid in previous years
Q3) Which of the following describes a retained earnings deficit?
A)When the retained earnings is less than the total share capital
B)When the retained earnings is a negative amount
C)When the company records a loss for the year
D)When the company does not pay out any dividends
Q4) Which of the following represents one of the basic rights of shareholders?
A)Shareholders can claim a portion of the company assets in the event the company is liquidated.
B)Shareholders may sell their shares back to the company if they wish.
C)Shareholders may authorise a business contract on behalf of the company.
D)Shareholders may determine at what price the company issues shares.
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Chapter 15: Companies: Capital Management and the Income Statement
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Q1) Which of the following will decrease the amount of Total shareholders' equity?
A)Repayment of debenture principal
B)Cash dividend
C)Share dividend
D)Share split
Q2) Comprehensive income is equal to the profit for the period,excluding the effects of discontinued operations and extraordinary items.
A)True
B)False
Q3) Petra Sales Company has issued 200 000 ordinary shares for $4 per share.The directors decide to undertake a share buy-back of 10 000 shares at $5 per share.This will have no overall effect on total shareholders' equity.
A)True
B)False
Q4) Which of the following statements is TRUE?
A)A share buy-back decreases assets and increases shareholders' equity.
B)A share buy-back decreases assets and decreases shareholders' equity.
C)A share buy-back increases assets and decreases shareholders' equity.
D)A share buy-back increases assets and increases shareholders' equity.
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Chapter 16: The Cash Flow Statement
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Q1) Sonesta Company sold equipment for cash.The income statement shows a loss on sale of $9000.The net book value of the asset prior to the sale was $25,900.Which of the following statements describes the cash effect of the transaction?
A)positive cash flow of $16,900 from investing activities
B)positive cash flow of $34,900 from financing activities
C)negative cash flow of $16,900 for financing activities
D)negative cash flow of $16,900 for operating activities
Q2) Cash received from selling inventory would be considered a:
A)cash inflow from financing activities.
B)cash inflow from operating activities.
C)cash outflow from operating activities.
D)cash inflow from investing activities.
Q3) Which of the following would NOT appear on a cash flow statement prepared using the direct method?
A)Increase/decrease in current liabilities
B)Payments to suppliers
C)Interest received
D)Collections from customers
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18
Chapter 17: The Framework of Accounting
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Q1) A conceptual framework of accounting is intended to eliminate the need for detailed accounting standards.
A)True
B)False
Q2) Refer to Table 17-1.What is the developer's gross profit?
A)$500 000
B)$300 000
C)$200 000
D)$800 000
Q3) AASB 110 refers to subsequent events that relate to new matters that have arisen after balance date.Which of the following occurrences after balance date is not an example of a new event?
A)substantial borrowings or share issues
B)specific information on the size of a bad debt that had previously been considered doubtful
C)a major fire or flood loss
D)becoming a party to a legal action
Q4) In most businesses,profit is recognised at the point of sale.
A)True
B)False
Page 19
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Chapter 18: Financial Statement Analysis
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Q1) The debt-to-equity ratio is used for which kind of evaluation?
A)Evaluating shares in a company from an investor's perspective
B)The overall profitability of a company
C)The ability of a company to pay its current liabilities
D)The ability of a company to pay its non-current liabilities
Q2) When comparing one company to another,what kind of information does the gross profit percentage provide?
A)How effective each company is at collecting its receivables
B)How profitable each company is based on the sale of its products
C)How much profit is generated by a share of each company
D)How well each company manages the financing of its assets
Q3) Horizontal analysis compares each item in the income statement to the net sales amount.
A)True
B)False
Q4) Earnings per share is used for which kind of evaluation?
A)The ability of a company to pay its current liabilities
B)The overall profitability of a company
C)The ability of a company to pay its non-current liabilities
D)Evaluating shares in a company from an investor's perspective
Page 20
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